The bankruptcy means test is a formula used in the United States to determine whether an individual or family is eligible for Chapter 7 bankruptcy. The means test was implemented as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in an effort to prevent abuse of the bankruptcy system and ensure that only those who truly need bankruptcy relief are able to access it.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a type of bankruptcy that allows an individual or family to discharge most of their unsecured debts, such as credit card debt, medical bills, and personal loans. However, not everyone is eligible for Chapter 7 bankruptcy.
How Does the Bankruptcy Means Test Determine Who is Eligible for Chapter 7 Bankruptcy?
The means test takes into account and evaluates the individual or family's income and expenses over the past six months. If their income is below the median income for their state, they automatically qualify for Chapter 7 bankruptcy. If their income is above the median income, the means test calculates whether they have enough disposable income left over after paying for their expenses to repay their debts.
What Happens If I Fail the Bankruptcy Means Test?
If the individual or family fails the means test, this does not mean that they cannot file for bankruptcy – it just means that they cannot file for Chapter 7 bankruptcy. They may still be able to file for Chapter 13 bankruptcy, which involves a repayment plan rather than a discharge of debts.
Do you have questions about your ability to qualify for Chapter 7 bankruptcy? Call Ryan Legal Services, Inc. in Mobile, Alabama at (251) 241-5234 to learn more!